Grain Prices and Farm Income

Where are they headed and what will be the impact on farmers purchasing plans?

Farm Profit Cycles Still Exist: When business is doing well, many of us have a tendency to think (hope) that it will only continue to get better. At the bottom of profit cycles when we are making very little money or possibly even losing money, attitudes become negative and we have a tendency to think that it may stay that way for a long time. That has never been the case either on the top side or the downside. High prices and profits are almost always followed by lower prices and then the cycle repeats itself back to the upside.

The Sky is Falling: That’s what some people think. Fortunately, that is not going to be the case at all. On the negative side, farm incomes will likely be down this year. The USDA is forecasting a 26% drop in net farm incomes from last year. However, that is still the second highest profit in history! We have been spoiled by three years of record high farm profits. That can never go on forever.

Granted, cash corn prices are down approximately 30% from the highs made in June. Cash soybean prices are down about 16% for the same time frame. This results in a few negative attitudes but doesn’t reflect on all of the good factors that will impact farmers and equipment manufacturers this coming year.

Consider the following five points:

1. Debt-to-equity ratios are still extremely low. The value of farmland has risen much faster than debt levels.
2. Equity and net worth of grain producers is at an all-time high. Because of high cash incomes over the last three years, many farmers have used very little if any of their credit lines.
3. Fertilizer and chemical prices have plummeted. Cost of production this coming year will be down considerably.
4. The revenue insurance prices are often not being factored into the equation. For this year’s crop those prices are $13.78 for soybeans and $5.91 for corn. Granted, producers will not receive that on 100% of the their crop but many will receive that on 70-80% of their crop. Still going to be a good year for them.
5. Producers want and need the newest technologies.

In summary, I would agree with those that think farm equipment sales might be a little softer this year. Let’s also remember that there is still leftover pent-up demand from the lack of availability of equipment over the last two or three years. This is going to be a very good year—just not a record one.

Richard Brock is owner and president of Brock Associates, an agricultural marketing advisory service and publisher of The Brock Report, established in 1980. He manages grain sales on over 800,000 acres throughout the U.S. and is an advisor on purchasing strategies for many large poultry, pork, dairy and food companies.

Don’t miss Brock’s presentation at the Marketing & Distribution Convention during the General and Business Session on Wednesday, Nov. 1 at 1:00 p.m.